Distributed Energy - July/August 2015

Microgrids: The Future of Microgrid Markets—The why, where, and how of growth in distributed energy resources

Lyn Corum 2015-07-22 17:42:19

Microgrids are becoming the transformative technology in today’s energy industry, and are putting many utilities on the defensive. A few utilities want to adopt or coopt the technology, depending on one’s perceptions, creating tensions among utility and industry stakeholders. The latter believe microgrid resources can best be delivered by private companies.
First, a definition: Microgrids are localized grids that can disconnect from the traditional grid to operate autonomously and help mitigate grid disturbances to strengthen grid resilience. According to the Microgrid Resources Coalition, microgrids can play an important role in transforming the nation’s electric grid. By integrating distributed generation, load management and storage in smart networks, microgrids transform passive load into responsive grid resources, providing energy, ancillary services, and demand management.
Mark Liston, Vice President, Energy &amp; Sustainability Services at Schneider Electric, says “State funding is driving increasing levels of investment and innovation in distributed energy resources. Inverter-based resources are a major
factor—including fuel cells and battery energy storage.”
Liston says, “We are seeing dramatically declining market prices around specific distributed energy assets such as storage, which is increasing adoption and utilization. In addition, the low cost of natural gas offers clients the opportunity to derive greater economic leverage from gas-fired distributed energy resources.”
Several East Coast states, including New York, New Jersey, and Connecticut are investing millions of dollars in microgrids installing the power systems microgrids need, independent of or in cooperation with utilities. This funding should overcome utility inertia and encourage them to back the new controls, software and energy storage microgrids need to grow. The developments on the East Coast are driven by the need to prevent the devastating effects of Hurricane Sandy that left large patches of communities without power when flooding and winds blew down distribution systems.
On the West Coast, however, the well-known microgrids at the Universities of California, San Diego and Irvine, the US Navy installations at Miramar in San Diego and at the Sonoma County administration campus are motivated by high power costs. They overcame recalcitrance with utilities to form working partnerships with them, justified in part to provide demand response. Advancing technology in this region will depend on research being funded by the state at the San Diego and Irvine campuses.
Some entrepreneurial companies that are developing microgrids and the associated innovative services that will drive new markets, including software controls, are profiled below. Additionally, there is information on initiatives in the regulatory arena where microgrids could play a role in providing demand response services and regulation support while stabilizing the utility customer rate base.
States Are Funding Projects
Under its “Reforming the Energy Vision” strategy, the Public Service Commission (PSC) of New York is examining the role of distribution utilities in enabling market-based deployment of distributed energy resources to promote load management and greater system efficiency. Already the PSC has approved Consolidated Edison’s non-traditional solutions to congestion problems in parts of its service territory, one of which includes developing one or more microgrids located at apartment complexes in the Brownsville load area.
In Potsdam, NY, the city is planning an underground microgrid, thanks to $1.2 million awarded by the US Department of Energy to General Electric, and $381,000 for design from the New York State Energy Research and Development Authority (NYSERDA). GE, National Grid, the National Renewal Energy Laboratory, and Clarkson University are developing the microgrid. The region has been particularly susceptible to power outages due to winter storms and flooding.
The power system is intended to supply electricity to Clarkson and the State University of New York at Potsdam, Canton-Potsdam Hospital and National Grid’s Potsdam Service Center. The microgrid would use a variety of power resources to include 3 MW of cogeneration, 2 MW of solar PV, 2 MW of energy storage, and 900 kW of hydropower. Development will take two years.
NYSERDA has awarded six additional contracts to improve power delivery in the state through smart grid technologies. Two relate directly to microgrid development.
The Rochester Institute of Technology received $78,000 to develop controls for microgrids to effectively allow the cooperation between utilities and microgrids. For instance, the NYSERDA statement says, it would take into account all power generated from distributed generation, energy storage, utilities, and other sources without causing any power quality issues to customers.
NYSERDA has awarded $2 million to Consolidated Edison to partner with Pareto Energy and General Electric to investigate the use of Pareto’s Gridlink technology to connect the Kings Plaza Shopping Mall in Brooklyn to Con Edison’s electrical networks to sell excess power into the distribution grid and provide a variety of support services. The mall is already set up to provide refuge during emergencies, and with the connection to the grid, could provide power to gas stations, supermarkets, hotels, or other vital services in the community.
Hoboken, New Jersey plans to build an underground microgrid that may serve up to 55 facilities for a maximum of $48 million. Cost will depend on the final size and architecture. Sandia National Labs is designing the microgrid to be separate from the utility grid, with no interconnection to feed power in either direction. Flooding concerns played a large role in the design, given that Hoboken is prone to flash floods. It suffered mightily during Super storm Sandy in 2012.
In Massachusetts four communities were awarded grants in September 2014 from the Community Clean Energy Resiliency Initiative to build microgrids to provide emergency back-up services and improve energy efficiency, reliability,
and resiliency. The awards are just the first round of grants the Initiative will make.
Connecticut, through its Microgrid Pilot Program created under state legislation, has awarded $23 million to nine communities to develop microgrids to withstand catastrophic storms and offer power refuge and critical services when the utility grids are down. One project at Wesleyan University is already operating. Two projects in Milford and Bridgeport were awarded funding in October 2014.
Milford was awarded $2.9 million to partner with Schneider Electric, Green Energy Corp. (headquartered in Eugene, Oregon) and ZHP Systems (headquartered in Wakefield, MA). The three entities will develop a microgrid to service a government center, a middle school, a senior center, senior housing, and city hall. The middle school and senior center will be available as shelters for residents during a power outage. The microgrid will be powered by two 148-kW gas-fired cogeneration units, a 120-kW solar array, and a 100-kW battery storage system.
Bridgeport was awarded $2.2 million to develop a microgrid to provide power to buildings at the University of Bridgeport, including a recreation center, student center, police station and two residence halls. FuelCell Energy will provide a 1.4-MW fuel cell to the buildings, which would provide shelter and dining hall service to 2,700 city residents and emergency service responders. This project is a companion to another microgrid project in the city funded in the first round of grants to provide power largely for critical city services.
Utilities Need Incentives
Where are the technology innovations
happening, and what businesses are pursuing this market? For one, the Department of Defense is aggressively encouraging its military to build microgrids and will likely push the industry forward in the same way the Advanced Research Projects Administration provided the seeds for the development of the Internet.
The US Department of Energy awarded $8 million in September 2014 to seven companies and institutions to help communities become more adaptive with microgrids and building in grid resiliency. One of those awards has already been mentioned—GE’s development of a microgrid in Potsdam in New York. Another award, $1.2 million, went to ALSTOM Grid, Inc. to research and design community microgrid systems for the Philadelphia Industrial Development Corporation and the Philadelphia Water Department.
EPRI, with its $1.2 million award from DOE, will develop a commercially-viable standardized microgrid controller that can allow a community to provide continuous power for critical loads.
Philip Barton, Schneider Electric’s Microgrid &amp; Advanced Reliability Program Director, says that “In California, the Public Utilities Commission and the California Energy Commission’s Smart Inverter Working Group are pushing for inverters to be more flexible and utility transmission and distribution friendly. Technically, this is easier for large global companies like Schneider Electric, who have already learned from the impact of high levels of inverter-based DER in Europe. The advanced features are already in our inverters and microgrid controller architectures.”
Homer Energy designs microgrid systems and modeling software for users across the globe, and in particular for islands or islanded villages on land such as in remote areas of Alaska, Virgin Islands, and even in Russia. It also provides services for small villages in underdeveloped countries and in areas outside the US with unreliable power systems where companies and individuals who can afford them buy diesel generators.
Peter Lilienthal, CEO of Homer Energy, says issues confronting micro-grid development in the US include a lack of standardized regulations across the country, including disincentives for utilities to permit them. A few states have decoupled utility power sales to create performance-based ratemaking, thereby eliminating disincentives toward distributed generation.
In many states, Lilienthal says, companies or institutions with microgrids and/or generators are not allowed to distribute or sell power across right-of-ways. If they did so, they would be considered a utility and would have to be regulated.
Lilienthal says utilities can make legitimate regulations burdensome blowing them out of proportion, charging safety concerns, and laying extra costs on owners and developers.
“Not a lot of people understand safety regulations,” he says.
On the other hand, microgrids can be a great benefit to utilities, Lilienthal argues, but would likely require changing business models. Without directions from regulators, utilities don’t have incentives to change, he explained.
Power Analytics, based in Raleigh, NC, welcomes readers to its website with the phrase, “Welcome to the Power Revolution.” It has recently introduced its “Network of Power,” a cloud-based software platform to operate microgrids, distributed generators, battery storage, and electric vehicles, allowing owners to sell power to another entity or the grid. The webpage proclaims, “The old power grid is becoming a transactional network.” Power Analytics was acquired by Causam Energy in September 2014.
David Bass, the chief financial officer of Power Analytics says, “We’re creating a capability that doesn’t exist [yet]. It’s all about real time, actionable communication.”
The company is developing applications that will allow users, for example, to reserve blocks of time on the electric grid to charge their electric vehicles.
Taylor Brockman, also with Power Analytics, provided more details. The company will introduce advanced settlements applications in early 2015. These applications will provide daily payment and clearing services between power seller and purchaser, allowing a microgrid owner to sell power to an entity other than a utility. He foresees an Amazon-like App store where more than kilowatt-hours are sold. For example, an Advanced Metering Infrastructure application could be purchased by a utility, or a company could buy a demand response app.
Breckman says a customer can already buy the Energy Net Application Development Kit allowing Power Analytics to be the service and payments entity.
Managing Power Quality
Oliver Pacific is chief technology officer at Spirae in Fort Collins, CO. Spirae builds real time controls and has developed its WAVE platform for electric distribution operators which allow them to reliably integrate and operate
renewable energy, storage systems, and electric vehicles. Spirae uses Power Analytics software to manage power quality with real time controls.
“Microgrids have to take responsibility for the health of the grid,” says Pacific. Grids depend on frequency regulation, voltage support and reactive power to remain stable and microgrids should be able to provide those elements when exporting power.
Distributed energy resources have been around for many years, but the addition of renewables in microgrid facilities is new. Pacific says, “If you actively manage your microgrid or distributed energy resource, you can manage power quality” when exporting power. Smart inverters have the ability to provide the needed controls for managing reactive power, Pacific explains. A combined heat and power plant can take reactive power out to support voltage.
For example Pacific says, “If you reduce power output below the maximum it smooths it out. You can do it with wind, and wind farms are doing it. We’ve slowed down solar power production by 18%” which smart inverters are capable of handling.
Pacific says while there are standards the real issue is who controls the generation produced by distributed energy resources. Currently, rules and regulations don’t allow inverters to control output and the incentives for controlling output are not there.
When power purchase contracts are based on a set amount of power delivered, Pacific asks: “How do I get paid if I reduce my power?” There are also business model issues and legal issues, he says.
An islanding grid application in the US is far off, Pacific says. As generator equipment costs come down and become price competitive with natural gas, we will see increased development of small scale combined heat and power, fuel cells, and smart inverters, he predicts. “There are a lot of good quality smart inverters. The financial viability of projects keeps going up.”
Power Generation Services, Raleigh, NC, provides aggregation services to commercial and industrial customers that own generation between 50 kW and 500 kW. Jim Szyperski, the company’s CEO, says Power Generation is the market interface for companies wishing to sell power into the marketplace or to participate in utilities’ demand response programs.
Power Generation has its central control facility in Houston, TX, called Grid Force Energy Management Services. It is certified by the North American Electric Reliability Corporation as critical infrastructure protection.
Szyperski says in the future, microgrids with multiple resources such as solar, cogeneration, and thermal storage will also be good candidates to participate in the power marketplace just as aggregated generation does now.
Power Generation works closely with Power Analytics and has licensed two patents from them.
“We think given the pace industry is moving toward the distributed energy model, there will be big microgrid plants and power will be spread across them, like peanut butter on bread,” says Szyperski.
“As storage capability improves and with recycling capability, microgrids become more self-sustaining,” he adds.
Are Islanding Grids Near?
JLM Energy, headquartered in Rocklin, CA, is a three-year-old company that has developed a half dozen microgrid products for the residential and commercial market. The solar, wind, storage, and controller systems are specifically designed to allow the customer to continue receiving power when the utility grid goes offline, or to build a self-sustaining power source in remote locations.
JLM Energy offers the Gyezr, a micro-controlled solar thermal system, the Solarz solar PV system for commercial buildings, the Zephr wind turbine for residential or business rooftops or property, and the Energizr energy storage system that allows customers to choose to run the residence or business off the storage system or the grid. The Measrz is a cloud-based energy management system that tracks energy production, consumption, system health and cost efficiency in real time. Gridz is a utility-scale harvesting, monitoring and distribution system capable of harvesting power produced by the solar and wind systems and storing it in the storage systems.
And then there is WIPOMO, located in Hayward, CA; and Denver, CO; founded by Charlie Johnson, the CEO. Johnson and partners have developed a mobile microgrid off-grid system that he calls the “Mobile Energy Ecosystem,” consisting of solar PV panels and a backup storage system, which can be towed by a truck. He and his partners, Green Energy EPC, a San Diego company, and Butler Sun Solutions, Solana Beach, CA, are testing the system now and plan to commercialize it by mid-2015.
Applications include powering traffic lights, lifeguard stations, and outdoor events for sound stations and food trucks. The last two applications use multiple diesel generators and replacing them with a solar system would reduce emissions. Johnson says the system could also provide ancillary services at the distribution level of the grid.
Utility Business Model Outdated
But with the growing popularity of microgrids, and also rooftop solar photovoltaics, which on their own as standalone power sources are not microgrids, utilities are becoming increasingly concerned about losing revenues to cover fixed costs. Some have labeled this a potential utility death spiral.
John Farrell, with the Institute for Local Self Reliance, said in an ACORE webinar in December 2014, “The foundation is coming out from under utilities. Retail sales peaked in 2007 and have remained stagnant since then.”
He adds that solar growth is contributing to undermining the utility business model. That model is based on utilities building new power plants as loads increase and placing them in their rate bases. Now 12% of new power plant capacity is coming from distributed solar resources, he says, and are not allowed in the rate base.
In a September 2014 paper, “The US Electricity Industry After 20 Years of Restructuring” (published by the University of California, Berkeley Energy Institute at Haas), Borenstein &amp; Bussnell write: “At the retail level, distributed energy threatens to unravel the economics of retail distribution supply.” The differences between average and marginal cost are exacerbated by inefficient rate-making and political economy, they add.
Borenstein &amp; Bussnell also argue that the lack of retailer responsibility for reliability also undermines the incentives to implement price-responsive demand such as time-of-use rates. Because it is electricity and not widgets, a supplier cannot reduce output when supplies or reserves are low, which in other industries would allow prices to go up. The grid operator supplies the needed power and spreads the fees to all retail generators.
New Role for Utilities
The California Public Utilities Commission published a staff paper in April 2014, “Microgrids: a Regulatory Perspective,” which discussed the issue of equity. When a microgrid consumes less electricity from the distribution utility, lost utility costs must be recovered by other customers. Other means by which the utility can collect revenues may need to be considered by the utility and regulator, the paper argues.
The staff paper offers the concept of transforming the role of the utility into a distributed system operator which would be responsible for ensuring there is available capacity for distribution of electricity generated either behind the customer’s meter, or connected on the utility side or flowing from the transmission grid.
The DSO would be able to determine appropriate costs for both interconnection and delivery of electricity flowing either way over the distribution grid. The paper concludes that this approach would allow the customer and other service providers to offer additional products and services in support of the microgrid. It would also ensure that the DSO is able to schedule and dispatch the two-way flow of electricity and manage the stability of the distribution system.
The issue of lost revenue disappears since the utility, which is responsible for the maintenance and operation of the distribution system, will be allowed to earn a rate of return on its assets. It might ultimately lead to a fixed-price calculation for access and use of the distribution grid.
If the microgrid can provide benefits to the grid such as relieving congestion, the costs of grid upgrades to support the microgrid or distributed generation may be included in the utility general rate case. Automated grid simulation and power flow modeling tools can be used to determine optimal sites for microgrids and address the impact of modifications required for microgrid development, and ultimately costs.
Accenture Smart Grid Services is independently supporting the idea of a distribution system operator. Valentin de Miguel, the company’s global managing director of smart grid services, says in the report “Digitally Enabled Grid Research”: “Utilities will need to fundamentally transform their business models, including the creation of distribution system operations services to manage a more complex and distributed grid.”
Transforming business models would include adopting new tariff structures; opening up markets; aligning subsidies; investing in grid optimization such as automation, sensing devices, and real-time analytics; and developing new customer products and services, says de Miguel.
Jon Wellinghoff, past Federal Energy Regulatory Commission (FERC) president, is advocating for a distributed system operator. In the August 2014 issue of Public Utilities Fortnightly, and at a conference on innovative regulatory and business models in a changing electricity industry at the University of San Diego in November, he argues that with customers actively generating their own energy, the source of the bulk of resources is changing and we need new structures.
Wellinghoff suggests that wholesale structures be transferred to the distribution side of the utility and expanded. An independent system operator would plan for and operate a distribution platform and market resources locally, separate from the transmission grid. Third parties could participate in buying and selling power into the distribution system in a way Power Analytics envisions.
Lyn Corum is a technical writer specializing in energy topics.